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Wednesday, 1 May 2013

Call to raise standards of Islamic asset management for growth

KUALA LUMPUR: The standards for Islamic asset management should be raised so that it can compete with conventional peers, said Fajar Capital Group CEO Iqbal Khan here.

He said though the Islamic asset management industry remains marginal and fragmented and continues to lag behind conventional systems which is estimated at US$58 billion (RM176 billion), its characteristics to compete in the market through values, ethics and authenticity will prove to be advantageous in the future.

“The industry has several competitive strengths in light of the evolving economic paradigm, including increasing institutional demand where sophistication has led to a rise in the number of Shariah-compliant alternatives for institutional investors,” he said during the inaugural public lecture organised by the BNP-Paribas- INCEIF Centre for Islamic Wealth.

He said global Islamic finance assets was expected to hit US$1.8 trillion in 2013 based on a report from Ernst and Young, adding that Islamic asset management is expected to grow around US$300 million to US$500 million this year.

“There is also a continued retail demand as global middle class will grow by more than 160% in the next 25 years from 1.8 billion in 2012 to 4.9 billion in 2030. The projected expansion of the global middle class is leading to exponential growth potential in takaful, waqf and pension funds,” Iqbal said.

According to him, though the global economic outlook is negative, this would not prevent Asia as well as the Middle East and the North Africa region (MENA) to become growth engines for the Islamic asset management industry. Another competitive strength of the Islamic asset management industry would be due indirectly, he said, to the fragility of the conventional system.

“The fragility of the conventional financial system has led to opportunities for institutions and markets that embrace ethical values. The ‘Occupy Movements’ in the US, the European sovereign debt crisis and the Arab Spring have led to grassroots support for concrete economic reforms,” Iqbal said.

Innovation with ethics and integrity, the ability to deliver the full proposition to the low end of the market, and delighting the customers with innovative products are core components that will ensure a brighter future for Islamic asset management.

Painting a positive picture of the Islamic management industry, the Dubai-based Fajr Capital Group CEO said the industry has played a significant role in the evolution of Islamic finance, which started in Saudi Arabia with the Darul Maal but it lacked the framework to succeed, forcing the industry to focus on Islamic banking.

However, the Islamic banking system had to follow the conventional banks and asset management was relegated but with growing demand and greater awareness in the new century, Islamic asset management is “seeing the light in the tunnel”.

From the year 2000, the Islamic banking and finance industries started to see the entry of investment funds, Islamic investment banks and pension management as well as the takaful.

“After three decades of Islamic finance, people wanted greater Syariah-compliant management of their funds. As was the case in Saudi Arabia, where a majority of workers said they wanted their pension funds to be managed by Syariah-compliant agencies,” Iqbal said.

He said Malaysia played a leading role, with a well structured approach, in the Islamic wealth management industry and hoped that Malaysia will export its success story to the rest of the Islamic world.

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